NPL disparities spell trouble for Spanish lenders

Louise Bowman
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Concerns for mid-tier banks as AQR looms; Likely that additional provisioning needed

In July 2012 US-based Oliver Wyman and German strategy consultant Roland Berger published a then much-anticipated set of stress tests on the Spanish banking sector. The exercise was undertaken to calm market fears over the eventual losses that the banks might face on their problem exposure, primarily to real estate lending. The two determined that the sector faced expected losses of between €170 billion and €190 billion under a base scenario and between €250 billion and €270 billion under an adverse scenario between 2012 and 2014.

New research published by Nomura last month reveals that while NPLs in Spain remain well below the adverse scenario envisaged in the 2012 stress tests, they are currently running at roughly 14% above the base-case scenario. However, a closer look at purely real estate exposure reveals that the domestic banks have now reached around 80% of losses envisaged under the...